Dear
Bankruptcy Adviser, My husband and I wanted to file a Chapter
7 bankruptcy. We were told we made too much money to file a Chapter 7 and
were forced to file a Chapter
13. In the process of filing, we surrendered our home. We filed successfully
but it was later dismissed due to failure to send in payments. My husband lost
his job -- that's why we were not able to pay. What rights do we have now, concerning
our finances? Our attorney never advised us of what our rights or options were.
We feel we were improperly advised by the lawyers handling our case. --
Tammy

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Dear
Tammy, At this point, I believe you have some options. First, I'm
assuming that with the loss of your husband's job, your household income has dropped
significantly. This means you might qualify for a Chapter 7 bankruptcy, which
could eliminate your debt.

Sometimes, it can be a good idea
to dismiss a Chapter 13 and file a new Chapter 7.

You have already surrendered the
house, so that's unlikely to be an issue in filing
a Chapter 7. The question you must consider is,
why was your case not converted to a Chapter 7
after your husband lost his job?

The bankruptcy code is a little
unclear, but it appears likely that the reason
your case was not converted is because of your
income at the time of filing the Chapter 13. When
you filed the Chapter 13, you and your husband
earned above the median income in your state.
Under a 2005
revision of the bankruptcy law, a "means
test" was established that uses median income
as a benchmark for deciding under which chapter
of the bankruptcy code people can file. That probably
was one of the reasons you did not qualify for
the Chapter 7 bankruptcy. If you convert a case
from a Chapter 13 to a Chapter 7, the law appears
to require that you look at your income over the
six-month period prior to filing the original
Chapter 13. That means your Chapter 7 case would
either be dismissed or require that you litigate
your case.

There are special circumstances
in which a judge could be swayed to consider your
income at the time your case is converted. However,
the result could require you to face an uncertain
litigation process when you could likely file
a new Chapter 7 and have a smooth case.

Now that your husband has lost his
job, you should be able to file the Chapter 7
bankruptcy because obviously your household income
has dropped significantly in the past few months.

Your attorney should have had an
answer to this question, and that is where you
need to start. If you have lost faith in your
current attorney, talk with another attorney in
your area.

Tammy, it's important that you act quickly. The
longer you wait to complete a Chapter 7 bankruptcy, the more likely your husband
will start working again. Then you might not qualify for the Chapter 7 and will
be forced to file another Chapter 13. Clearly, though, you don't want your husband
to turn down work simply to maintain your eligibility for a Chapter 7.

Right
now, your creditors are probably starting to gear up for another assault on you
and your income. Because your original debt was not discharged, it is growing
again. As well, the creditors now know where you live and where you work. This
will make it very easy for them to sue you and start the lawsuit process.

My
advice is to get started right away. The silver lining of your husband's unemployment
is your likely qualification for Chapter 7 bankruptcy. Begin that process as soon
as possible. This should allow you to wipe out your debt. Then, once your husband
is working again, you can use more of his income to rebuild your lives.

Justin Harelik is a practicing
attorney in Los Angeles. To ask a question of
the Bankruptcy Adviser, go to the "Ask
the Experts" page, and select "bankruptcy"
as the topic.

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